Related topics: retirement, retirement planning, mortgage, mortgage rates, interest rates
Paying off your house isn't the first thing financial experts advise, even if you're nearing retirement age.
But what if you could buy years of stress-free living simply by taking advantage of the lowest mortgage rates most of us have ever seen?
Just as you kiss your salary goodbye, you'd ditch what's probably your biggest monthly expense.
In retirement, you'd have a house-payment-size chunk of cash each month to fatten emergency reserves, use for fun or -- if it came to that -- cope with growing costs when inflation inevitably started up again.
You could stretch your savings further. "The longer you can wait before tapping your savings, the more likely you are to not run out," says Wayne Blanchard, an Orlando, Fla., certified financial planner with the Garrett Planning Network.
The reduced expense might even let you delay claiming Social Security a few years. After you hit 62, benefits grow 7% to 8% with each year you delay until you're 70.
"I am a fan of everyone going into retirement without a mortgage, if at all possible," says Sheryl Garrett, the founder of the Garrett Planning Network, an affiliation of fee-only financial advisers.
So, too, is MSN Money personal-finance expert Liz Pulliam Weston -- within limits.
"Ideally, you'd pay off your mortgage by the time you retire," Weston says. "But people don't lead ideal lives most of the time, and many still have more-pressing financial goals than paying down a low-rate, potentially deductible mortgage, even when they're in their 50s."
Indeed, the ideal candidates to seize the opportunity are few.
"More and more, the people I see haven't planned well enough for (it) to happen," Blanchard says. "They've been refinancing and refinancing to get money out to finance their lifestyle. And now, 'Oops, how am I going to get the home paid off before I retire?' The truth is, they're not. They haven't got the money for it."
Your reward for clean living
Who's got the best shot?
"I think a shorter-term mortgage can work for people who are already in good financial shape," Weston says, "which means they have no other debt, they're on track for retirement savings, they've built a fat emergency fund and they're adequately insured."
That doesn't mean you have to be rich. It means you've gotten through many of life's biggest challenges without sabotaging your financial future. And now that you're looking to improve your retirement prospects, you're finding that record-low rates (for both savers and borrowers) create a rare opportunity.
If you're among those who can swing it, a short-term mortgage can be a smart retirement strategy. Adding money to the mortgage now buys you an income stream later.
The payoff can be huge.
Suppose you're 50 and can get a new 30-year mortgage for $200,000, at a terrific rate of 4.3%. Your payment (principal and interest) would be just $990 a month. A 15-year mortgage comes in around 4%, with payments of $1,480. If your current finances permit it, you can buy yourself 15 years of $990 a month in your retirement pockets at a cost of $490 a month today.
